Cable OK to Attack FiOS With Verizon Wireless

The U.S. Department of Justice slapped some conditions on the Verizon Wireless -cable deal that will limit where the wireless carrier can bundle cable services but still allow its MSO partners to co-market Verizon Wireless services with impunity. (See DoJ Puts Conditions on Verizon-Cable Deal and Verizon 4G Spectrum Deal Approval Soon?)

The way it worked out, Verizon Wireless will be barred from cross-marketing cable and wireless services in Verizon Communications Inc. (NYSE: VZ) FiOS markets. But Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), Cox Communications Inc. and Bright House Networks will have the green light to combine cable and wireless in all their markets, including FiOS territories.

That condition falls short of one Sprint Corp. (NYSE: S)'s had asked for in filings with the Federal Communications Commission (FCC) , which is still reviewing the order, but already appears to have the blessing of Chairman Julius Genachowski. Sprint wanted to prevent Verizon Wireless and its cable partners from bundling services in FiOS areas. (See Sprint Wants to Snip the Verizon/Cable Bundle.)

But the DoJ's proposed settlement only places that restriction on Verizon Wireless, reasoning that it will keep Verizon Communications incented to compete against the cable companies. The DoJ is also removing a contractual restriction that prevented Verizon Wireless from co-marketing FiOS. (See Comcast, Verizon & TWC Bundle Up and Comcast/Verizon Combo Steers Clear of FiOS.)

The co-marketing agreements "as originally structured would have required Verizon Wireless to sell the cable companies' services on an 'equivalent basis' with FiOS where FiOS is available, thereby reducing Verizon's ability and incentive to sell its own services aggressively," the DoJ said.

Verizon Wireless does have the okay to bundle cable services in Verizon Communications markets with DSL but only until 2016 (that date can be extended with the DoJ's blessing). The DoJ thinks that could give Verizon Communications an opportunity to "reconsider" its decision to stop building out FiOS and to bring its FTTH platform to DSL territories.

Here's a snapshot of FiOS markets where Verizon Wireless won't be allowed to bundle cable services:

Table 1:
Market Incumbent Cable Operator
Tampa Bay, Fla. Bright House
Philadelphia, Pa. (and parts of N.J.) Comcast
Baltimore, Md. Comcast
Boston, Mass. Comcast
Washington, D.C. Comcast
Rhode Island and other parts of New England Cox
Northern Virginia Cox
Los Angeles Time Warner Cable (and some Comcast)
New York, N.Y. Time Warner Cable
Dallas, Texas Time Warner Cable

Here are some other conditions and amendments that the DoJ is proposing:

  • In five years, the DoJ will lift a rule that bans the MSOs from selling wireless services from Verizon Wireless's competitors. After that, they can partner with whomever they want.

  • The MSOs can elect to resell Verizon Wireless services under their own brand "at any time." The original deal between them didn't allow that MVNO option to come into play for four years.

  • The DoJ will let Verizon Wireless and its cable partners operate an innovation/technology joint venture that was also worked into the original spectrum and associated marketing deals, but they must dissolve it by December 2016, unless the government gives them permission to extend it. As reported earlier, Sam Schwartz, president of Comcast Converged Products, is leading the J.V.'s strategic development, and Tony Heyman, VP of new product development at Verizon Wireless, is heading up its operations and distribution.

— Jeff Baumgartner, Site Editor, Light Reading Cable

Jeff Baumgartner 12/5/2012 | 5:23:40 PM
re: Cable OK to Attack FiOS With Verizon Wireless

Free Press's reaction was mixed:

"Limiting the joint-marketing agreements between Verizon and the cable companies to four years is a start. But this concession doesn't deal with the deep structural problems in the market for at-home broadband service. There is still no meaningful competition — and that will mean higher prices for everyone..."



Jeff Baumgartner 12/5/2012 | 5:23:40 PM
re: Cable OK to Attack FiOS With Verizon Wireless

The DoJ didn't give everything on Sprint's wish list, but Sprint was okay with the conditions. It's statement:

Along with various other parties, Sprint recognized that Verizon’s joint venture with Comcast, Time Warner Cable, Bright House Networks and Cox threatened to transform a competitive broadband marketplace into one of unfair and unbalanced collaboration that could raise consumer prices for broadband and impede future broadband innovation. The concessions to which Verizon and the cable companies have agreed could mitigate these potential threats. Sprint thanks the Department of Justice for its careful review of this proposed venture and continued support of wireless competition.  ###

And DirecTV was among those other parties.  It's good to go: 

"DIRECTV is pleased the Department of Justice recognized that the proposed transaction would result in competitive harm and took steps to address several specific issues."

And in case you're wondering, Cox is doing the happy dance:

"We are pleased that we have reached a timely agreement with the Department of Justice that helps preserve the most important goal of the agreement between Cox and Verizon Wireless: to provide consumers with easier access to a full suite of communications services.  We now look forward to the approval of the spectrum transaction by the FCC."


Jeff Baumgartner 12/5/2012 | 5:23:39 PM
re: Cable OK to Attack FiOS With Verizon Wireless

One more condition just added to the story.  The DoJ is allowing the Verizon Wireless-cable technology joint venture to continue, but they must dissolve it by December 2016 unless the government gives them the okay to extend it.  There's also language in there that prohibits Verizon Wireless from sharing secret info about VZ Communications with the cable companies.

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